Monday, 2 March 2015

SMEs and UK Public Procurement

SME's are constantly told that the government wants to increase the amount of business that it is doing with them. This is an important issue, one very dear to my heart, and as Peter Smith of Spend Matters points out the government is not telling the truth about their failure to deliver on this.

Peter links to the latest report which is extremely misleading about some of the key points, and skips over what I think is actually vitally important news about payment terms, and some potentially good news about a revamp of the currently lame Contracts Finder.

Before I rant about the data, let me get to the good news story: from 25th February 2015 everyone in the supply chain to central government must comply with 30 day payment terms. We can compare this to the Tesco/Sainsbury problems and see how vital this is for SMEs

The government has consistently remembered the importance of this issue, but not delivered - as signified by the changing language. 25% business central government business with SMEs has moved from a commitment to a target to an aim to an ambition and I think it is currently an aspiration.
The concept has suffered from an internal government clash between Mr. Eric Pickles' concept of piling things high (at sub-central level) to get economies of scale, and Mr Maude's more nuanced approach. But the upshot is that once again support from SMEs has not delivered.

I used to deliver programmes for BusinessLink operators, so I am probably biased but when these were cut SMEs lost an avenue for support (there are many valid discussions about whether it was the right support to the right businesses, but still). Directing more procurement to them would have helped them during an incredibly difficult time for many SMEs.

SMEs have been facing a terrible situations with banks not wanting to lend, reduction in public spending programmes (suitable for SMEs), reduction in overall business spending, withdrawal of BusinessLink (ok, maybe not such a loss for many), increased competition (from the many new one man bands and SMEs set up during this time) and exploitation from big customers paying late (if at all). The good think about Public Procurement is that it does pay, and relatively promptly.

I think it is great to encourage these business- some of which will grow, and others of which will die with the ones in the middle providing a living for many people. There are real problems in targeting government contracts to be appropriate for SMEs, and the government should not shy away from discussing that but it should also be honest.

The headline on the report says 25% business with SMEs. The text says £11.4bn and 10.3% directly (with 15.8% indirectly). Let us be clear - indirect does not count. If I buy a sandwich, and the shop owner buys some cheese with the money to make my sandwich, I did not buy some cheese. I did not say not stipulate where the shop owner bought the cheese, or how much he paid or when he paid, or who he bought it from. I bought a sandwich.

If we are going to include the supply chain the number should be a lot higher than 25%, because the shop owner might employ a cleaner - should that count as my spend because I bought a sandwich? The 25% figure is a nonsense even before you get to the fact that the indirect spend is based on information provided by big suppliers without any actual evidence. It is only been given so that the Cabinet Office can claim to have met a target (sorry an aspiration) ahead of the election - in doing so it degrades trust in public pronouncements.

In the breakdown there are good news stories: BIS is 34% direct, DCLG is 24%, DFID is 30%. Why not trumpet those successes and explain why the DWP is only 4%? And how you mean to address the overall spend?

Remember though that central government procurement at about £100bn is only half the total with the other half spend by sub-central bodies who may be better at engaging with SMEs.

And the last point, which I again I need to declare an interest on, is Contracts Finder. The revamp is very necessary, as on the old version the search engine did not work on the front page which is a pretty serious flaw (it works on the new version). More importantly awareness of it was low - one courses rarely did more than half of the delegates know about it before I told them. It cannot bring in SMEs if they do not know about it. In the press release Lord Young says that it is unique "in terms of scale and ambition" - well the old Supply2gov (run by BIP Solutions, who [full disclosure] I do work for) had pretty much the same function, the same ambition, a larger scale, and much higher brand recognition. (Note BIP Solutions now run Competefor which does a similar job on a smaller scale).

OK, what I've been ranting - what do I want? Honest data about the situation, a renewed commitment to increasing direct SME spend from 10% to 25% (or even 20%) over the next parliament, and a plan for doing so outlining the problems for particular departments and the potential costs (reduced economies of scale) and benefits (innovation, flexibility etc.). Not too much to ask I hope.

BTW, a year ago I discussed this with a senior Labour politician and they seemed to have no more recognition of this than the current government, so this is not a politically focused rant (and Mr. Pickles and Mr Maude are members of the same party).

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PAWA Consulting Ltd. specialise in consultancy and training for the technology and sports business industries. We have strengths in supply chain management and business research. Together with our partner organisations we provide a wide range of services to the public and private sectors in the UK and overseas.